Goldman’s Record Taxpayer-Subsidized Profits

by dday

Following up on Digby’s last piece, Matt Taibbi’s excellent reported piece on Goldman Sachs is now online, and he’s created a kind of sequel with this piece about Goldman’s big profits, mostly the result of handout after handout from the Feds:

Last year, when Hank Paulson told us all that the planet would explode if we didn’t fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery. This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We’d save their asses, they’d save ours. That was the deal.

It turned out not to happen that way. We constructed this massive bailout infrastructure, and instead of pumping that free money back into the economy, the banks instead simply hoarded it and ate it on the spot, converting it into bonuses. So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale. It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.

Goldman’s profits only count as “profit” if you consider a pass-through federal subsidy to AIG, quick and easy loans and multiple bailout programs made available to them by the FDIC and the Fed after converting themselves into a bank holding company, the forced collapse of much of its competition and fees from stock issuance from other banks having to repay TARP to be something based on hard work and ingenuity and not political connections and corporate welfare.

But what’s most amazing about all of this is how Goldman Sachs is taking all this federal largesse and plowing it back into the market at HIGHER rates of leverage than even during the crisis which amount burnt down the entire financial system:

As Felix Salmon notes, Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

And meanwhile, out in the country, unemployment will top 10 percent soon, and lots of people will be wondering why those Wall Street profits haven’t trickled down.

Ian Welsh has a lot more.

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